Walt Disney Company 1995 Derivative Litigation on the Ovitz Employment Agreement

Advanced Business Law HW 9- Chapter 41 Case 41-14 -Corporations
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Chapter 43 Case 43-13 Case 43-20 Problem 4, 7
Brehm v. Eisner .43-13
I. JUDGMENTThe Delaware Supreme Court agrees with the Court of Chancery held that the Disney defendants were correct in approaching the OEA, hiring Ovitz as the President, and then terminating him on a non-fault termination (NFT). Additionally, the defendants did not have to prove the NFT severance to Ovitz was fair.II. LEGAL PRINCIPLEA. ISSUEWhether the defendants should be held liable for failing to exercise due care when approving the employment agreement and failing to safeguard the company’s assetsThe plaintiffs lodged a shareholder derivative complaint against the Disney defendants, including the board, for approving compensation that paid former president Ovitz more if terminated than working for the company under the employment agreement.B. HOLDINGThe plaintiffs failed to establish that the board lacked independence and acted on Eisner’s interest. The plaintiffs need to provide the defendants did not rely on a compensation expert; the expert was incompetent and did not act in good faith. There was also a failure to prove the waste and the reasonable termination payout.III. REASONINGA. GENERAL ANALYSISDel. Chancery Ct. R. 23.1 allows shareholder actions on behalf of the corporation (shareholder derivative suit) if a failure to properly conduct business judgment. The board has a fiduciary duty of care, and the shareholders can sue to redress wrongs that the board fails to address.B. APPLIED ANALYSISThe defendants approved the employment agreement, and NFT terminated Ovitz’s services. At the same time, the plaintiffs failed to show the lack of independence among the Board members, and there was valid business judgment. Even if there was harm, this could not be directly tied to the defendants’ negligence and breach of the duty of care. The plaintiffs had other options, such as voting out the board.
IV. JUDGMENTThe court held that the Disney defendants were right in approving Ovitz’s employment agreement and non-fault termination, which were part of protected business judgments. As such, they did not breach their fiduciary duty.
Oversight of Legal Compliance 43-2043-20 In Re Caremark Int'l. Inc. Deriv. Legit
I. JUDGMENTThe directors’ did not breach the affirmative duty to monitor daily activities and whether the corporation complied with regulations.II. LEGAL PRINCIPLEA. ISSUEWhether the board of directors breached the duty of care and failed to act in good faith, failing to ensure the company’s reporting system was adequate. Employees at Caremark International gave illegal kickbacks to doctors for patient referrals. When this was discovered, the shareholders wanted the directors held liable after Caremark was court-ordered to pay fines. The legal issues considered are the duty of care and the business judgment ruleB. HOLDINGThe directors have the affirmative obligations to act in good faith but not the duty to supervise day-to-day legal compliance. There was no clear indication of any wrongdoing. Caremark shareholders sued the directors for breaching the duty of care for failing to supervi...